UK income investors have had a rough ride this year with dividend cuts from the likes of Shell (RDSB) and BP (BP.) and cancellations from banks and a raft of other industries. According to the Link UK Dividend Monitor, 176 dividend-paying FTSE companies cancelled their payouts in the second quarter of this year. Globally, investors lost more than $100 billion in income in Q2, according to Janus Henderson, and this year is set to be the worst for dividends since the financial crisis.
But some companies have bucked the trend and restored their dividends quickly. Using Morningstar Direct data, we can highlight five firmsthat have reinstated their payouts in recent months.
Reinstating dividends not only brings back much-needed income to shareholders, but it also signals a return to a form of normality after a turbulent year for stock markets and world economies. While the UK economy remains fragile, some of these companies' decisions to restore payouts suggest a tentative recovery in activity in recent months.
George Luckraft, manager of the AXA Framlington Monthly Income fund, expects more firms to follow their lead. “As we go through the year, I expect companies which weren’t as affected by conditions during the crisis may pay some of their deferred dividends." But he warns that investors should get used to lower payouts this year and next.
UK insurers came under pressure from regulators in March to halt their dividend payouts to protect their finances ahead of the coming economic turbulence: Aviva (AV.) and Direct Line (DLG) froze theirs, while Admiral suspended its special dividend, which was due to be paid in April. In recent results, Admiral announced this would be reinstated and paid in October, citing “reduced economic uncertainty” as lockdown measures started to lift. On the same day, shareholders will get their 2020 interim dividend.
The company has a three-star rating from Morningstar analysts, who assign Admiral a fair value estimate of £30, above the current price of £26.76. According to Morningstar Direct data, Admiral has an expected yield of 3.3% and has posted five-year dividend growth of 7.8%.
Specialist engineering firm IMI said in its July results it would pay its suspended 2019 final dividend and also make the interim payment for 2020. Chief executive Roy Twite said: “As a result of the robust profit and cashflow performance in the first half, we are revisiting two decisions taken earlier in the year. Firstly, our decision to suspend the 2019 final dividend payment has now been reversed, and we will make that payment in full. We will also reset our dividend for 2020 to a level that enables IMI to more effectively deliver on its long-term growth ambitions.”
The move to reduce its 2020 payout by 50% to 7.5p counts as a cut, but this is in keeping with many companies this year that have reduced their payouts to more realistic levels – a trend that has pushed yields down across the board.
FTSE 250 engineering firm Bodycote provides heat treatment services to the aerospace and oil industries. At the height of the pandemic in April, the final dividend for 2019 was put under review as customers such as Boeing and Airbus reduced the production of new planes, and the oil industry reeled from a plunge in prices amid lower demand. But in its latest half-year results in July, the company said it would now pay this interim dividend in September this year as a restructuring programme had started to yield results. Bodycote now expects to save £58 million after closing 18 of its plants.
The company has yet to make a decision on its 2020 payout, however. Analysts at Berenberg bank have just upgraded Bodycote to a “buy”, saying that the industrials sector offers some compelling recovery opportunities, especially after steep falls in share prices this year.
Shares in shipping services company Clarkson are up 14% in a month after posting stronger-than-expected results in a tough year for stocks exposed to the global economy. First-half results showed a rise in profits and revenues compared to 2019 in a period described by chief executive Andi Case as the most disruptive in living memory. Shareholders were further buoyed by the announcement that the delayed 2019 final dividend would be paid this year, alongside the 2020 interim dividend.
According to Morningstar data, Clarkson's dividend has grown by 5.6% over a five-year period. The firm is also looking to extend its run of 17 consecutive years of dividend growth. Although as the 2020 interim dividend was the same as last year at 25p, this puts the onus on the final dividend, which will be paid in 2021, to meet that goal.
Paper and packaging firm Mondi supplies paper to offices but also packaging for the parcels that have been a lifeline for stay-at-home consumers during lockdown. The company made a profit of €466 million in the first half - a period when many companies posted heavy losses. Announcing its results, Mondi said the 2019 dividend will now be paid this year as well as an interim dividend for 2020.
“Having delivered a robust trading performance in the first half of the year, and given our resilient business model and strong financial position, the Board has revisited the decision taken in April to suspend the final 2019 dividend and is pleased to resume the payment of dividends,” said chief executive Andrew King.